Asana Inc. (ASAN, Financial) is a software company that has created one of the world’s leading work management platforms, attracting customers like Meta Platforms (META, Financial), Alphabet's (GOOG, Financial) Google, Uber (UBER, Financial) and many more.
The business was founded by Dustin Moskovitz, a co-founder of Facebook who is most famous for inventing the iconic “Like” button, which is now prevalent across almost all social media platforms. He is also the large insider owning approximately 46 million shares, or over 15%, of Asana. With a net worth of $12.6 billion, Moskovitz has deep pockets. He has been aggressively buying shares throughout 2023.
In August, Moskovitz made four large transactions, snapping up between 160,000 and 689,999 shares in each trade. He paid an average price of between $19 and $22 per share.
I believe the CEO is planning to do whatever it takes to “save” the company given its stock price plummeted by 89% from its highs in November 2021 to January 2023. A positive is the strategy seems to be working as, since the start of the year, the stock price has reinflated by 58%.
In this discussion, I will break down Asana's business model and its financials to see if the insider buying is justified from a fundamental perspective. Let’s dive in.
Business model
Asana’s software platform is focused on enabling teams to manage projects and work together easily. Its core system uses a pyramid-style graphic, which starts with defining a mission for a project before moving onto objectives, portfolios and individual tasks. The whole idea is to give team members a unified overview of what tasks need to be done and who is working on what. This helps to ensure alignment and improves productivity.
Once inside an organization, Asana uses a “land and expand” tactic to upsell from a single team and department to multiple parts of a business. The company was also a pioneer in product-led growth, which offers demos and free trials to get its foot in the door with businesses. However, its biggest advantage is the aforementioned founder who is, of course, extremely well connected with the Silicon Valley elite, given his founding role in Facebook.
Asana’s total addressable market, valued at $22.6 billion in 2020, is huge. This is expected to jump up to $50.7 billion by 2025, according to an IDC study.
Strong financials
In June, the company reported strong financial results for its first quarter of fiscal 2024. Its revenue of $152.4 million increased by 26% year over year. U.S. revenue drove the majority (61%) of this and increased by a 31% year over year, while international revenue rose by 20%, accounting for 39% of revenue.
Asana's largest customers continue to be its fastest-growing segment with 510 spending $100,000 or more each year, which rose by 31% year over year. Its customers spending $5,000 or greater also rose by a solid 32% year over year, contributing 73% of revenue.
Its largest deployment now covers 200,000 paid seats, which is a testament to the many applications of the platform. The business did report macroeconomic headwinds and longer sales cycles in the quarter. However, its free-to-paid conversion rates have remained steady, which is a benefit of the product-led growth motion. Engagement with the product also remained high across organizations, according to the earnings call. This is a crucial point as enterprise decision-makers are scrutinizing engagement rates for SaaS tools and aiming to cut what departments are using.
Its dollar-based net retention rate was strong at 110%, while its larger customers ($100,000 or more) in annual spending reported an increase of 130%. This is a great sign as it means customers are sticking with the platform and spending more. Asana’s focus on the enterprise should give it a competitive advantage over others.
AI product features
Artificial intelligence is a hot topic for many organizations. Durng the first-quarter earnings call, Moskovitz said he has been “studying the risks and opportunities around advanced AI for years.” He believes the technology can help Asana achieve its mission of “helping humanity thrive by enabling the world’s team to work together effortlessly.”
For example, the business has launched its AI recommendations, giving its customers clear and actionable points to help them streamline their work process. The business also launched Asana Intelligence, which encompasses a number of features from priority task selection to smart rule suggestions to help with automation of repetitive tasks.
Its health check feature, which is in beta testing, enables a project status update to be assembled rapidly. This offers progress, risks and ways to improve the likelihood of hitting one's goals. A tool like this would be a major time saver for a project manager.
Its “Ask Asana” feature is also in beta. This will enable teams to ask questions such as, “What are the blockers for this project?”
Margins and balance sheet
Asana reported an operating loss of $22.3 million in the quarter, or a -15% margin. This may seem bad, but it was actually a substantial 30 percentage point improvement over the prior-year quarter.
The company also has a strong balance sheet with $523.5 million in cash and cash equivalents and total debt of $289.9 million, which is well covered.
Valuation
Asana trades with a price-sales ratio of 7, which is below its five-year average.
The GF Value Line indicates a fair value of $54 per share based on historical ratios, past financial performance and analysts' future earnings projections. Therefore, the stock is modestly undervalued at the time of writing.
Final thoughts
Asana is a tremendous company that has created a ubiquitous software product. Despite the huge competition in this industry, Asana’s main advantage is its founder, who is not afraid to put his own money on the line. This effectively gives the business a backstop and, with its large enterprise customer base, I forecast its retention rates to remain super high.
